Activision Blizzard, Electronic Arts: Time To Deal With Reality

In recent weeks, countless articles appeared, questioning the legitimacy of a downfall of Activision Blizzard's (NASDAQ:ATVI) and Electronic Arts' (NASDAQ:EA) common shares. Articles such as Activision Blizzard Trumps Electronic Arts and Activision's Earnings demanded that the stocks should go up. Reality, however, is much harsher to deal with. In the following article I give you the issues with ATVI and EA, from a gamer's perspective.

ATVI

In some articles it was said the ATVI is appreciated only by its subscriber level, which is in fact not true. But regarding the last call, some things were left unmentioned:

The only reason subscribers was still high, was due to an important released patch (Deathwing) where they probably measured at the peak.

Subscribers level was taken from November/December before SWTOR release.

Then people say, "well we still have big incoming cash-cows, strong, powerful brands that the companies will profit from greatly." Even if this is not already priced in, take into account the following issues:

Diablo III is free for some consumers, ATVI partly cashed in due to the "Annual Pass."

Gamers have significant troubles enjoying the current Modern Warfare 3 and are not anticipating another MW game this year (think of the quality...).

The only upward potential for ATVI would be a truly awesome Titan MMO. However, I already heard rumors there were problems in the development (but this might not be true).

Coming back to the price of the stock, which is in fact quite high (12-13), whereas in the prosperous time of World of Warcraft, Call of Duty and an economy at its peak, the stock was marked at a mere 16 per share, I for one do not believe it will reach such success in the near future.

ATVI and EA

Possibly, the economic crisis (which is hitting world-wide) is hurting the industry, especially since Activision and EA sell a lot of movie-related and (sorry to say) sloppy games which are not chosen in difficult times. In recession, gamers tend to focus greatly on the top quality games only, on which they want to spend their hard-earned money. Note, the sector should fluctuate as a result of economic downturn.

Okay, and now the final reason, the one thing which is truly making me afraid as a Blizzard and gaming fan as a whole.

The following reason is more in-depth and much more long-term based than the previous comments. Since last year we have seen a great rise in the amount of people playing games on the internet, phones and even tablets, whereas quality games are only rarely appraised by their true value. I am not only talking about piracy but also about small companies making innovative games and stealing the so-called hardcore gamers towards their more flexible and innovative gameplay. That aside, young people (the future) actually enjoys making games themselves, which is in fact, a threat to profitability of the sector as a whole. Thinking about the sector in a long-term perspective makes me afraid especially about investing in the middle man (such as EA), who will be cut out when better open platforms arrive on the internet. But thinking about the future of this sector in terms of profitability for large companies is devastating.

Truthfully, the future of the internet is free entertainment.

Disclosure: I am short ATVI, EA for a longer period of time (say one or two years).